Compensation policies are adopted to align with a company’s culture, its business needs and strategies and market trends. An effective compensation program plays a pivotal role in attracting and retaining key talent without incurring unnecessary costs.
Perquisites, while usually a small component of executive pay packages, are currently soaring -- and becoming a point of focus among shareholders and the public. Perquisites are often provided to support the executives in performing their duties, but the exclusivity it offers can also serve as a status symbol. They can become problematic when they become excessive, underscoring broader concerns with executive compensation practices. Ultimately, while perquisites will remain a constant feature of executive pay packages, a recent spike in perquisite costs is testing shareholder tolerance. In this post, we look at what is driving that spike, with a focus on aircraft, housing and security, and at how companies are reporting the costs.
Why are perquisites back in the spotlight? Starting during the COVID-19 pandemic, total CEO perquisites among the S&P 500 companies in fiscal 2023 saw 31% and 41% increases compared to fiscal 2019 (before the impacts of the pandemic). This trend seemingly stems from changes to the way white-collar professionals work. Personal aircraft usage, security services and relocation have seen the most change over the past years, both in frequency and value. While housing and relocation costs have come down after spiking during the pandemic, they remain well above 2019 levels. And the norms continue to evolve. Reports echo what we’ve heard in our recent engagement discussions: the December 2024 killing of a health insurance executive has caused companies and shareholders to review their approach to certain perquisites.
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Aircraft Costs: Gaining Elevation
Among S&P 500 companies, the median value for CEO air travel in 2023 climbed by approximately 46% compared to 2019. The number of companies providing this benefit also increased over this period, from 169 in 2019 to 217 in 2023 (up 28%).
Executive perquisites related to personal aircraft use have received extensive public and regulatory scrutiny over the last ten years. For example, the SEC took enforcement actions against companies with faulty reporting of air travel perks, and Boeing’s former CEO David Calhoun drew criticism after deciding not to move to the company’s headquarters and instead travelled via private jet from his two homes (one in New Hampshire’s Lake Sunapee and the other in a gated South Carolina resort community) to the Arlington, Virginia headquarters. In reviewing Calhoun’s commute, the Wall Street Journal identified more than 400 trips in the past three years. This reporting prompted an internal company review which revealed that over a half million dollars in aircraft costs incurred by Mr. Calhoun and three other executives during 2022 and 2021 had been misclassified under SEC rules and guidance.
At Salesforce.com, CEO Mark Benioff received $4.6 million in perquisites for FY2024, more than twice as much as in 2022 or 2023. The 2024 amount consists only of two types of perquisite fees: security costs at $3 million and aircraft usage at $1.6 million. Salesforce argues that the aircraft-related fees were business-appropriate expenses as these were attributable to CEO Benioff's work-related travel, including between his permanent residence in Waimea, Hawaii and the company's headquarters in San Francisco, California.
In reporting their CEO’s personal aircraft use, companies like Salesforce.com state that they consider executive travel an appropriate business expenses, but also acknowledge that some portions of this travel “may be deemed to be in the nature of commuting…” (Salesforce.com 2024 proxy statement). Notably, a study from Boston College and Arizona State University highlighted in a New York Times opinion piece found that CEOs working long-distance from offices underperformed CEOs that returned to the office.
Apart from cost and questions about performance, Benioff’s ability to commute to the company’s headquarters in the comfort of a private jet also increases the disparity between C-suite executives and the rank and file employees, considering the recent mandate for some Salesforce employees to return to office up to five times per week. Different sets of rules create the potential to alienate the workforce and ultimately increase turnover.
Take, for example, Starbucks Corporation, which dealt with both a pricey CEO transition and labor relations issues last year. In addition to approximately $90 million in sign-on awards and $28.2 million in total target annual compensation, its new CEO Brian Niccol will be eligible to use company aircraft for travel between Southern California and the company’s headquarters in Seattle, Washington “as is required to perform your duties and responsibilities” (SBUX Form 8-K, 8/14/2024). This will not be cheap, if Salesforce.com’s payments for Mr. Benioff are any indication. Starbucks will also cover the additional cost of setting up a remote office in California, and Mr. Niccol is allowed use the corporate jet for personal travel, up to a maximum of $250,000 in aggregate incremental cost per year. Although a cap is positive, $250,000 handily exceeds the median value of air travel perks for the S&P 500 (approximately $150,000).
Mr. Niccol’s pay and perquisite package stand out in the context of Starbucks’ high profile labor relations issues, which led to a contested proxy battle ahead of the company’s March 2024 annual shareholder meeting. The Dissident, Strategic Organizing Center, accused the company of human capital mismanagement. The proxy contest ended prior to the 2024 annual meeting when both sides agreed to work toward a "foundational framework" on collective bargaining.
Canary in the Coal Mine
Although the financial impact of CEO travel on these corporate giants might be perceived as minuscule in comparison to total compensation levels, excessive levels of perquisites might be an indicator of underlying broader problematic pay practices and should be examined with scrutiny. This was the case for Mr. Benioff and Salesforce.com, which exhibited excessive granting practices in fiscal 2024 after promising shareholders that CEO pay would decrease for the year. Shareholders ultimately rejected the company’s 2024 say-on-pay vote, with excessive perquisites serving as a harbinger for other excessive pay practices. Indeed, if there are concerning practices in one area of compensation, other concerns tend to follow.
During CSX Corporation’s 2022 annual meeting, the company received only 59.5% support for its say on pay not only because of the magnitude of CEO pay but because of excessive CEO perquisites after the company spent over $200,000 in “company-mandated aircraft usage.” The company responded to the reprimand by placing a $175,000 annual cap on the perk only to reverse course two years later. Although the increase may be triggered by increasing cost of operating an aircraft, the adoption of a higher limit was not accompanied by a compelling rationale, particularly given that it was a reversal of a shareholder-driven improvement to the pay program.
With almost $2 million in costs related to personal use of private jet and associated taxes, Palo Alto Networks topped the list of S&P 500 companies with highest CEO air travel perk for its fiscal 2023. This is 2.8 times larger than the amount paid to its CEO in 2022, which marked the first year Palo Alto reported any air travel expense. Palo Alto also paid more than $1 million in CEO security costs for 2023. To explain these payments, the company reported that its CEO, Nikesh Arora, had been involved in a security incident, and that a security consulting firm had identified credible threat actors with the willingness and resources necessary to conduct an attack on Mr. Arora.
To address safety-related issues, provide more convenient means to visit multiple offices, and save time by avoiding airport delays to more quickly attend to urgent business needs – these are the most common reasons why companies provide private jet allowances to their top executives. While these clearly business-related reasons are generally merited for companies’ use of private jets, many executives stretch the definition of business-related to cover expenses that are considered personal to other classes of working adults and the SEC, such as your commute to work.
Looking for More?
Click here to access our full report on The Resurgence of Executive Perquisites, which provides data and analysis on housing & relocation and security costs, as well as discussion of shareholder views and a look ahead.
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